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Home Mortgage-Are You Paying Too Much?
I have always wondered if loan officers prejudge people based on how they dress. You know if you show up with holes in your jeans- they might give you a hard time sort of thing. Well, in this recent report from the Federal Reserve Board of 8,850 lenders covering 30.2 million home loan applications the goal was to look at patterns in high priced lending. The report reveals some interesting and startling tendencies.
Sub prime lending has broadened. Ten years ago there was a relatively limited selection of products available. Ten years ago if a borrower didn't meet the underwriting criteria they didn't get the loan. Those criteria were: type of loan, amount borrowed, term of the loan, occupancy, quality of collateral, etc. It was simple: did you make enough to pay the loan back and the amount you got was usually a fixed percentage of the value of the property. Pretty cut and dried.
But the market changed and began to grow. From 1994-2005 the non prime market has grown from billion to 0 billion.
Today with lots of different loan products available (over 50) lenders are pricing loans more on risk factors such as creditworthiness or ability or willingness to document creditworthiness or income. This has led to some interesting lending patterns. It also has greatly expanded homeownership opportunities. Obviously borrowers in this category pay more based on the risk factor. It seems to me that it also presents more of an opportunity for abuse.
In a nutshell now applicants who fall into the "subprime" category, rather than being turned down simply pay a higher rate. What this report shows in rather dramatic fashion is that black and Hispanic borrowers are more likely and Asian borrowers less likely to obtain loans that cost more than non Hispanic whites pay.
To me the report begs the questions: Do these applicants have the time, information and experience to do some comparison shopping?
Have these borrowers been led to this market because of race?
Once they have entered the market is there adequate competition for all products?
The report shows in no uncertain terms that many less sophisticated borrowers pay more for their mortgage. Indeed a high price to pay for not doing some homework.
About the Author: Your quest for the BEST deal on a home loan starts with knowledge and information-you can't have too much of either.
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